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Actionable Data for Emerging Markets

Abhijeet Rane, Senior Vice President & Managing Partner

All leading IT companies - Microsoft, HP, Dell, IBM/Sun, Oracle, and Amazon are driving towards providing a variety of cloud based platform and application services. Complementing them are a whole host of new companies that are aggressively developing solutions for this space. No doubt over the next 5 years cloud based services will be the new arena of intense competition. A lot has been written about the pros and cons of the various services so we will not try and address them.However, very little though has been talked about the impact on the channel. The channel comprising of ISV partners, Systems Integrators (SIs), dealers, resellers and retailers form the essential cogs of an IT vendor’s eco-system that puts products and solutions in the hands of the customers. This is particularly true in the small and medium business market (SMB) where the vast majority of the opportunity can ONLY be addressed through the channel. Selling direct is not economical. IT companies such as Microsoft and HP are particularly dependent upon the channel to maintain their position in this market. So it makes complete sense that these companies are trying to find ways to engage and involve the channel in their cloud computing efforts (see HP Partner to Deliver SaaS to Target SMBs) Page 1 of 5

How does this hold up in the era of Cloud services? Old Distribution Value Chain IT Vendor Master Distributor Reseller Customer Customer needs and customer scenarios will likely drive the change in channel structure in the era of cloud services. These will likely be very basic such as email. Three scenarios come to mind depending upon the extent i. the number of cloud services and applications a customer uses: Customer Scenario 1 – Customer needs a single cloud application or very few cloud applications .for very small businesses this is a viable scenario. For decades the packaged product industry has survived on a two-tier system consisting of master distributors such as Ingram Micro and Techdata and a large reseller base. Pentagon. the resellers themselves handle the final sale to customers and provide installation. it is likely that a really small business will not use more than 4-5 Cloud services. Resellers of cloud services can capitalize on such opportunities Customer Scenario 3 – Customer needs multiple cloud services and subscribing to them on a one-off basis. web conferencing.techaisle. collaboration etc. Integration and customization needs may or may not be www. Integration and customization needs are minimal at best. this reseller base is very large. GE.Actionable Data for Emerging Markets CHALLENGING THE CHANNEL STRUCTURE The first issue to tackle is Cloud Computing’s impact on the existing channel structure. While master distributors aggregate products and handle the logistics of distribution and promotion to resellers. etc). customization and maintenance services. The exception is a handful of customers that a vendor sells directly to (typically very large strategic customers such as Page 2 of 5 . integration. In the case of SMBs. managing multiple vendors is an administrative burden and perhaps an inhibitor to greater adoption of cloud services.e. Customer Scenario 2 – Customer needs few services but integration with existing systems and customization are paramount.

This scenario will likely emerge over time as SMBs and enterprises dive deeper into cloud computing. it impacts channel competencies at a deep level. www. The interesting thing here is that a CSA could be an IT vendor such as Microsoft or HP or an entirely independent entity. IT vendors that act as CSAs (Microsoft.techaisle. Indeed.e. Salesforce) will be subject to some form of “cloud nepotism” i. integrate and syndicate cloud services to resellers and customer.Actionable Data for Emerging Markets important. In many ways CSAs replace master distributors in the old value chain. New Cloud Services Delivery Value Chain This emerging structure does much more than shake the foundations of the current channel structure. their priorities will always center on their own services rather than third party services. This scenario is also potentially the most disruptive for the channel. It is possible therefore those CSAs that focus on a particular industry or deliver a specific competency (and closely related competencies) will appear in due course of time. It suggests the need for a Cloud Services Aggregator (CSA) that has the capability to Page 3 of 5 . This makes room for an independent entity whose primary function is to integrate and deliver services that best serve their customer base.

customer support and a whole host of related competencies that the channel did not have to deal with before. Some services will offer limited customization while others will offer extensive customization capability. This suggests that over time the channel must develop and indeed be trained in new competencies. channel members do not make much on the products they sell but depend on time billed related to the above activities. In the SMB space. data center management. Maintenance Installation is replaced by “Provisioning”. The severity of the challenge increases considering that channel revenue now takes the form of an annuity rather than a lump sum payment. Clearly this works well for packaged products but breaks down to some extent when it comes to cloud Page 4 of 5 .Actionable Data for Emerging Markets CHALLENGING THE CHANNEL COMPETENCIES Broadly speaking the current channel responsibilities can be divided into two . Similarly. in particular. billing. 2. implementation can further be divided into 3 sub-tasks: 1. These encompass service provisioning.techaisle.distribution and implementation. Old Distribution Value Chain www. Installation. These channel activities are a significant and indeed primary source of revenue for the channel. The logistics of packaged product distribution are replaced by delivery of services over the web. Integration and Customization and 3. Integration and customization needs will be service dependent. Maintenance is all but gone except in cases where customization has been done by the channel.

Similar competencies are observed among these players.techaisle. At this stage the onus rests largely on IT vendors such as Microsoft and HP to aid existing channel members to rework their business model. The coming change in competencies is critical if Cloud Computing is to succeed. retrain for new competencies and deliver profitability to sustain the channel.who essentially resell telco services without having to invest in their own telecom facilities or lines. Large telcos such as Verizon would be the equivalent of an IT vendor that also acts as service Page 5 of 5 .Actionable Data for Emerging Markets Cloud Services Value Chain A parallel to this emerging structure can be drawn from the telecom industry. Large telcos also support an eco-system of “virtual telco operators” . www.